In Notice 2010-15, the IRS provides guidance, in the form of Q & As, on certain provisions of the Heroes Earnings Assistance and Relief Tax Act of 2008 (the “Act”). The Notice addresses the following sections of the Act: section 104 (relating to survivor and disability payments with respect to qualified military service), section 105 (relating to treatment of differential military pay as wages), section 107 (relating to distributions from retirement plans to individuals called to active duty), section 109 (relating to contributions of military death gratuities to Roth IRAs and Coverdell education savings accounts), and section 111 (relating to an employer credit for differential wage payments to employees who are active duty members of the uniformed services).
Among the points made by the Notice are:
–Under section 401(a)(37) of the Internal Revenue Code (the “Code”), as added by section 104 of the Act and applying to qualified retirement plans, the survivors of a participant who dies while performing qualified military service are entitled to any additional benefits (other than benefit accruals relating to the period of qualified military service) that would be provided under the plan if the participant had resumed employment and then terminated employment on account of death. These benefits include accelerated vesting, ancillary life insurance benefits, and other survivor’s benefits which are contingent on a participant’s termination of employment on account of death.
— Section 401(a)(37) provides that vesting service, but not benefit accruals (whether benefit accruals under a defined benefit plan or contributions under a defined contribution plan), must be provided for a period of qualified military service for purposes of determining the amount of, and entitlement to, any death benefit payable with respect to a deceased participant.
–Section 401(a)(37) does not apply with respect to a participant who dies while performing military service, unless that participant had reemployment rights under USERRA with the employer maintaining the plan.
–Section 414(u)(9) of the Code, added by section 104 of the Act and applying to qualified retirement plans, allows an employer to provide benefit accruals to a participant who dies or becomes disabled while performing qualified military service, as if the individual had resumed employment in accordance with his or her USERRA reemployment rights on the day preceding death or disability, and then died or became disabled the next day. The Notice indicates that this rule may be used only if all participants are treated the same way. This rule is permissive, not mandatory.
–A plan must be amended to reflect the requirements of section 401(a)(37) and (if used by the employer) section 414(u)(9) by the last day of the first plan year beginning on or after January 1, 2010 (January 1, 2012, for governmental plans).